Buying or renting: what do low credit rates change?

Posted on

This is a complex mathematical problem: should you buy or rent your home? Low mortgage rates encourage people to choose the first option, but rising prices and property taxes can dampen the heat and favor the second, which is more economical in the short term.

The cost of borrowing has melted

The cost of borrowing has melted

Most often, you have to borrow to buy real estate. And that has a cost: that of mortgage. But with current low real estate rates (1.17% on average in August according to the Housing Credit Observatory / CSA), the price of a loan has dropped. Judge instead: for a home loan of $ 150,000 over 20 years at 1.17%, its cost excluding insurance is $ 18,240, compared with $ 36,480 at 2.25% at the end of 2015, $ 66,720 at 3, 92% in early 2012 or $ 87,600 at 5% in 2008! The differential in monthly payments is immense : around $ 700 at 1.17%, compared to around $ 780 at 2.25%, $ 900 at 3.92% and $ 990 at 5%.

Lower monthly payments than rents

Lower monthly payments than rents

The sharp drop in mortgage rates has made it possible to narrow the gap between rents and monthly payments, which advances the thinking between buying and renting in favor of the first city. In Dijon, for example, you can afford an apartment of 75 m² for a budget of $ 150,000 (excluding notary fees and any work) and monthly payments of $ 700 excluding insurance over 20 years. For the same property according to the BestAgents data, the rent amounts to $ 785.

Even if you add the cost of loan insurance, home ownership is less costly. But it is without counting on the property tax that we are wrong to neglect. For a 75 m² property in Dijon, you have to count at least $ 1,200, or $ 100 to be added to the monthly payments.

The added value, the icing on the cake

The added value, the icing on the cake

In the end, the financial burden remains (slightly) higher by owning rather than renting, but the deal becomes a winner by considering resale, all the more so as the price increase (+ 10.2% in ten years in France d ‘after company agents) allows a capital gain which will offset the cost of credit. According to company, it takes less than two years for the purchase of our Dijon apartment to become profitable, compared to five years in 2014.

Rental, the choice of flexibility

Rental, the choice of flexibility

However, it is necessary to take into account the costs related to the purchase such as the notary fees that can be calculated online as well as the maintenance, in particular the energy saving works to which the old dwellings are subjected. It is the owners who are involved, not the tenants, and that adds to the cost.

And for an equivalent amount, a tenant can live in a larger interior, of the order of ten square meters more. Not to mention its greater flexibility to move. And there is another way: rent your main residence and take advantage of low mortgage rates to make a rental investment !

 

Leave a Reply

Your email address will not be published. Required fields are marked *